Despite being responsible for less than four percent of global emissions, Africa has been disproportionately affected by the climate crisis. In fact, research has shown that the continent of Africa is the most vulnerable to the negative impacts of climate change.
At the same time, the continent’s energy needs are growing significantly. As one of a few regions around the globe still experiencing significant population growth (present estimates indicate growth at more than three times the global average), we will need an ever-increasing amount of energy to meet our development goals. Many countries across the continent are struggling to meet their energy needs. South Africa’s power crisis is well-publicised but in recent times the likes of Zambia, Zimbabwe, Mozambique and Ghana have all struggled with excessive outages.
In some cases, those energy challenges have been exacerbated by climate change. Take Zimbabwe and Zambia for instance. They’ve been forced to ration energy supplies to consumers, in part because a major drought has driven Lake Kariba’s water levels so low that it can no longer be used for hydropower.
Investment will therefore be critical to ensuring that the continent is able to meet the converging threats of the climate and energy crises. But what approach should investors take when it comes to addressing both in ways that are meaningful and impactful while also generating viable returns?
According to Norsad Capital’s Head of Impact and Sustainability, Kuda Mukova, a good place for any investor to start is by ensuring that they act in line with international best practices.
“At Norsad, for example, we are a signatory to the United Nations Principles for Responsible Investment (UNPRI),” he says. “In line with that commitment, we will adopt and disclose climate-related information in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).” We have also recently published our climate statement, which is a commitment of how Norsad will play its part in building a climate resilient continent.
“We believe that by increasing the transparency of the climate-related risks that our portfolio companies are exposed to, Norsad’s clients will proactively move to address these areas of risk and by doing so enhance their business’s resiliency,” he adds.
When it comes to the investments themselves, Mukova advocates for focusing on the areas where capital will have the biggest and most immediate impact.
“When it comes to energy, for example, we believe that it’s especially important to invest in critical players in the commercial and industrial sectors that are trying to build up their energy resilience,” he says. “If businesses such as food processing factories, feedlots, and others are able to keep operating even in the midst of an energy crisis, that doesn’t just help build their resilience but that of the countries they operate in too.”
If such businesses are using renewable energy sources, such as rooftop solar, to build that energy resilience then they’re also playing a proactive role in dealing with the reducing carbon emissions.
Of course, Africa’s energy needs go beyond the industrial and commercial sectors. Rural homes, schools, and healthcare facilities also need energy. Fortunately, says Mukova, there are companies that are doing innovative things here too.
“A good example from within our own portfolio is Nyangani Renewable Energy,” he says. “Based in Zimbabwe, it designs, builds and operates hydroelectric schemes in that country and in Malawi. Over the years, it has helped bring electricity to many rural villages, schools, and homes. There are undoubtedly many other companies out there which could have a similarly significant impact, if only they had the right backing.”
Those kinds of changes are massively economically beneficial and have the potential to result in significant rewards for the companies that enable them as well as the investors backing those companies.
And while some governments across the continent might be reluctant to admit it, renewables are likely the best way to solve the energy crisis and build resilience in the face of the climate crisis.
Take solar, for example. Figures from the International Energy Association (IEA) suggest that Africa is home to 60% of the world’s solar resources. At present, however, it holds just one percent of solar generation capacity. Any meaningful shift aimed at making the most of those resources would make a massive difference to the energy crises being experienced by so many African countries. Such an approach could additionally position the continent as a leader in climate resilience.
“Ultimately, many of the solutions to Africa’s climate and energy crises are one and the same,” Mukova concludes. “With the right investment, those solutions can be unlocked to their full potential and bring Africa to the point where it’s a leader on both fronts. For the investors that understand this, there’s also massive potential to see serious gains too.”